Pay Ratio

HR Policy Association in conjunction with the Center On Executive Compensation believe that the pay ratio disclosure mandated by the Dodd-Frank Act is an example of a regulation where the costs far outweigh any potential benefits. The pay ratio provision requires publicly held companies to annually calculate the median total compensation for all employees globally, as defined under the SEC’s executive compensation disclosure rules, and disclose a ratio of the median employee’s compensation to the CEO’s compensation. Given the prescriptive nature of this provision, it is likely to be strictly interpreted by the SEC and will require companies to determine the compensation of every employee, whether full- or part-time, domestic or global, in accordance with the SEC’s rules for calculating and disclosing the compensation of senior executives. Since global companies do not maintain aggregated global data in this way, companies will be required to devote a considerable amount of resources to gather the data and calculate the median in order to comply with this requirement, rather than focusing these valuable resources on creating jobs and strengthening the American economy. Moreover, the pay ratio disclosure does not provide investors with material information that would shape investment choices or voting for directors. Accordingly, HR Policy believes that this mandate should ultimately be repealed as it is the type of regulation targeted in President Obama’s executive order to eliminate those rules that are “not worth the cost.”